CRANFIELD UNIVERSITY SASAENIA PAUL OLUWABUNMI COMPARATIVE RISK ASSESSMENT OF OFFSHORE OIL AND GAS RISKS AND OFFSHORE RENEWABLES INSTALLATIONS SCHOOL OF ENGINEERING ENERGY SYSTEMS AND THERMAL PROCESSES MSc Academic Year: 2013 - 2014 Supervisor: Athanasios Kolios August 2014 CRANFIELD UNIVERSITY SCHOOL OF ENGINEERING ENERGY SYSTEMS AND THERMAL PROCESSES MSc Academic Year 2013 - 2014 SASAENIA PAUL OLUWABUNMI COMPARATIVE RISK ASSESSMENT OF OFFSHORE OIL AND GAS RISKS AND OFFSHORE RENEWABLES INSTALLATIONS Supervisor: Athanasios Kolios August 2014 This thesis is submitted in partial fulfilment of the requirements for the degree of Master in Science © Cranfield University 2014. All rights reserved. No part of this publication may be reproduced without the written permission of the copyright owner. ABSTRACT The development of adequate energy sources to satisfy the ever increasing energy demand in the world has led to the development of several offshore energy sources. Offshore oil and gas industries and offshore renewables installations have had a lot of growth in recent years, this growth has led to an increase in accompanying risks and challenges in these industries. Thus, it is pertinent to assess all the risks in the offshore energy industry, to create a ‘feed- in base’ for both offshore renewables and offshore oil and gas industries to use. This thesis critically identifies and analyses all the risks in the offshore energy industry through a thorough and extensive literature review creating a comprehensive risk register. Electronic surveys were created for both the offshore oil and gas and offshore renewables industries; based on a total of eight responses from professionals and Cranfield University doctoral researchers with research interests peculiar to each of the offshore industries. The first stage risk prioritization using FMEA was done. The second stage risk prioritization was achieved through the TOPSIS methodology by the use of six criteria and the risk priority numbers of each risk from the first risk prioritization stage. The risks were ranked and subdivided into three groups namely: high, medium and low risk scenarios based on results from FMEA and TOPSIS mathematical models developed. The outcome of the risk assessment identified the critical risks in the offshore oil and gas industry as: exploration risks, political instabilities, fluctuating fiscal terms, geological risks, expropriation risks, health and safety risks. The critical risks in the offshore renewables industries were identified as: reduction of subsidies, supply chain instabilities, investment risks, structural failure risks, compliance risks and fluctuating standards. Critical risks common to both industries were identified as: market uncertainties, fluctuating policies, environmental risks and price volatility. Keywords: PESTLE analysis, multi criteria analysis, analytic hierarchy process, weighted sum method, weighted product method, TOPSIS, failure mode and effect analysis. i ACKNOWLEDGEMENTS First of all, I want to appreciate my supervisor, Athanasios Kolios, for his help, guidance and advice during the course of my thesis work. His input was key in the preparation of this dissertation and his motivation gave strength to my passion when the sheer volume of work I had to do overwhelmed me. I would also like to thank my academic sponsors, Esso Exploration Production Nigeria Limited (Exxon-Mobil) for providing me with the financial leverage and for covering all the expenses of my MSc program in Cranfield University. My sterling academic performance would not have been possible without Mobil’s support. My sincere gratitude also goes to my family back in Nigeria especially my parents, Pastor and Pastor (Mrs) Oluwabunmi for their constant words of advice, support and prayers that have kept me through the crest and troughs of life. A deep reflection has made me realize how privileged I am to have you as my parents and I’m forever grateful. Lastly, but most importantly, I’d like to express my gratitude to God Almighty. Many times, I faltered; many times, I stumbled; many times, I almost gave up; but, I drew inspiration from God’s strength in me. I would eternally be grateful to God’s help in my academics because my track record of excellence would not have been possible without God’s grace. ii TABLE OF CONTENTS ABSTRACT ......................................................................................................... i ACKNOWLEDGEMENTS.................................................................................... ii LIST OF FIGURES ............................................................................................. v LIST OF TABLES .............................................................................................. vii LIST OF EQUATIONS ........................................................................................ ix LIST OF ABBREVIATIONS ................................................................................ xi 1 INTRODUCTION ............................................................................................. 1 1.1 BACKGROUND ........................................................................................ 1 1.2 AIMS AND OBJECTIVES ......................................................................... 3 1.3 THESIS STRUCTURE .............................................................................. 4 2 RISK IDENTIFICATION AND ANALYSIS........................................................ 5 2.1 OFFSHORE OIL AND GAS INDUSTRY RISKS ....................................... 5 2.1.1 POLITICAL RISKS ............................................................................. 7 2.1.2 OPERATIONAL RISKS ...................................................................... 9 2.1.3 ECONOMIC RISKS .......................................................................... 12 2.1.4 SUPPLY AND DEMAND RISKS ...................................................... 14 2.1.5 HEALTH AND SAFETY RISKS ........................................................ 16 2.1.6 ENVIRONMENTAL RISKS ............................................................... 17 2.1.7 STRATEGIC RISKS ......................................................................... 19 2.2 OFFSHORE RENEWABLE INDUSTRY RISKS (PESTLE ANALYSIS) .. 21 2.2.1 POLITICAL ANALYSIS .................................................................... 23 2.2.2 ECONOMIC ANALYSIS ................................................................... 25 2.2.3 SOCIAL ANALYSIS.......................................................................... 28 2.2.4 TECHNICAL ANALYSIS .................................................................. 29 2.2.5 LEGAL ANALYSIS ........................................................................... 33 2.2.6 ENVIRONMENTAL ANALYSIS ........................................................ 35 2.3 COMBINED RISK REGISTER ................................................................ 37 3 MULTI CRITERIA DECISION MAKING ........................................................ 39 3.1 INTRODUCTION .................................................................................... 39 3.2 MULTI CRITERIA ANALYSIS ................................................................. 42 3.3 AHP ........................................................................................................ 46 3.3.1 AHP IN ENERGY PLANNING .......................................................... 47 3.3.2 AHP PROCESS OVERVIEW ........................................................... 48 3.3.3 FUZZY AHP (FAHP) ........................................................................ 51 3.3.4 SPECIFIC APPLICATION OF THE AHP METHOD ......................... 52 3.4 WEIGHTED SUM AND WEIGHTED PRODUCT METHODS ................. 59 3.4.1 WEIGHTED SUM METHOD (WSM) ................................................ 60 3.4.2 WEIGHTED PRODUCT METHOD (WPM) ....................................... 60 3.4.3 SPECIFIC APPLICATION OF THE WSM AND WPM ...................... 61 3.4.4 WSM AND WPM IN ENERGY PLANNING ...................................... 64 iii 3.5 TOPSIS ................................................................................................... 64 3.5.1 INTRODUCTION .............................................................................. 64 3.5.2 TOPSIS PROCESS OVERVIEW ..................................................... 66 3.5.3 SPECIFIC APPLICATION OF THE TOPSIS METHOD ................... 69 4 FAILURE AND EFFECT MODE ANALYSIS (FMEA) .................................... 70 4.1 INTRODUCTION .................................................................................... 70 4.2 FMEA PROCESS MECHANISMS .......................................................... 70 4.3 RISK PRIORITY NUMBER (RPN) .......................................................... 71 4.4 MAJOR SHORTCOMINGS OF THE FMEA METHOD ........................... 75 5 OVERALL RISK PRIORITIZATION ............................................................... 76 5.1 METHODOLOGY.................................................................................... 76 5.2 FIRST STAGE RISK PRIORITIZATION ................................................. 84 5.3 SECOND STAGE RISK PRIORITIZATION ............................................ 88 6 RESULTS AND DISCUSSION ...................................................................... 92 6.1 OFFSHORE OIL AND GAS INSTALLATIONS ....................................... 92 6.2 OFFSHORE RENEWABLES INSTALLATIONS ..................................... 95 6.3 COMPARATIVE RISK ANALYSIS .......................................................... 97 7 CONCLUSIONS AND RECOMMENDATIONS ............................................. 98 7.1 CONCLUSIONS...................................................................................... 98 7.2 RECOMMENDATIONS FOR FURTHER WORK .................................... 99 REFERENCES ............................................................................................... 101 APPENDICES ................................................................................................ 123 Appendix A PAIRWISE COMPARISON MATRIX ........................................ 123 Appendix B FMEA STANDARD (BS EN 60812:2006) ................................ 125 Appendix C FMEA ELECTRONIC SURVEY SCREENSHOTS ................... 132 Appendix D EXCEL SPREADSHEETS ....................................................... 144 REFERENCES ............................................................................................... 161 iv LIST OF FIGURES Figure 2-1 Oil and gas sector risk radar [14] ...................................................... 6 Figure 3-1 General MCDA process flow chart .................................................. 40 Figure 3-2 MCDA flow chart for sustainable energy applications [111] ............ 41 Figure 3-3 Complex interactions of sustainable energy systems [111] ............. 42 Figure 3-4 AHP process flow diagram .............................................................. 50 Figure 3-5 ANP process flow diagram [136] ..................................................... 51 Figure 3-6 Proposed hierarchical AHP model……………………………………..55 Figure 3-7 TOPSIS methodology stepwise analysis [163]………………………..67 Figure 4-1 FMEA implementation cycle…………………………………………....72 Figure 4-2 FMEA process flow chart based on survey results………………...….74 Figure 5-1 Methodology work flow chart……………………………………………77 Figure 5-2 Offshore oil and gas FMEA survey outcome…………………………..82 Figure 5-3 Offshore oil and gas risk prioritization…….………………………..…..82 Figure 5-4 Offshore renewables FMEA survey outcome………………………….83 Figure 5-5 Offshore renewables risk prioritization…….…………………………..83 Figure 6-1 Overlapping risks in offshore energy industries…………………...…..97 Figure A1-1 Typical AHP hierarchy [1]…………………………………………….123 Figure B4-1 Relationship between failure modes and failure effects [5]…….…128 Figure B5-1 FMEA analysis flow chart [5]…………………………………….…..130 Figure B5-2 FMEA criticality matrix [5]………………………………………..…..130 Figure C1-1 Electronic survey – Screenshot 1…………………………………...132 Figure C1-2 Electronic survey – Screenshot 2…………………………………...133 Figure C1-3 Electronic survey – Screenshot 3…………………………………...134 Figure C1-4 Electronic survey – Screenshot 4…………………………………...135 Figure C1-5 Electronic survey – Screenshot 5…………………………………...136 Figure C1-6 Electronic survey – Screenshot 6…………………………………...137 Figure C2-1 Electronic survey – Screenshot 7…………………………………...138 Figure C2-2 Electronic survey – Screenshot 8…………………………………...139 v Figure C2-3 Electronic survey – Screenshot 9…………………………………...140 Figure C2-4 Electronic survey – Screenshot 10…………..……………………...141 Figure C2-5 Electronic survey – Screenshot 11………………………………….142 Figure C2-6 Electronic survey – Screenshot 12….……………………………...143 vi